The PPP Mistake - Village Magazine

 —  December 2009 - January 2010

  , Global Auction of Public Assets I

examine Public Private Partnerships (PPPs) in

Ireland and  other countries. The continuing

ﬁscal crisis and ﬂood damage could see the gov-

ernment further expand the role of PPPs. However,

this will only compound the negative impact of

this ﬂawed model of infrastructure investment.

Public infrastructure in the st century is con-

fronted with new challenges: climate change,

the economic, energy, water and transportation

needs of megacities in Asia, megaregions in North

America, European city regions, and older indus-

trial areas. Yet Public Private Partnerships and the

global infrastructure market, ﬁnanced by invest-

ment and pension funds, are fuelling a new era of

public asset sales. The key ﬁndings of this ﬁrst crit-

ical, global analysis of these developments are:

Public Private Partnerships are not an alter-

native to public investment, nor do they reduce

public debt. Ultimately, PPPs are entirely ﬁnanced

by government and/or user charges, fares and tolls

– private debt ratcheted up in PPPs is in practice

public debt embodied in long-term contractual

obligations which must be paid oﬀ through pub-

lic sector revenue accounts. There is no quick ﬁx

or a cheap, low tax solution. Despite these struc-

tural ﬂaws, PPPs continue to be embedded in the

public sector.

Public Private Partnerships have sim-

ilar structural ﬂaws to the causes of the

current global ﬁnancial crisis. Public Private

Partnerships are designed with special purpose

companies, oﬀ-balance sheet accounting, limited

accountability and transparency, securitisation,

outsourcing and oﬀshoring, secondary market

reﬁnancing and shrouded in commercial conﬁ-

dentiality - precisely the policies and practices that

led to the global crisis.

There is a new threat of privatisation and

asset monetization as governments and cit-

ies confront continuing needs with plummeting

resources. Chicago, New York, Los Angeles and

several states plan to sell oﬀ existing assets; Russia

and Poland have recently announced privatisa-

tion plans; whilst in Britain new PPP models are

being developed.

A global infrastructure market has emerged,

fuelled by pension funds, mutual funds and

insurance company investment, which account

for % of global investment assets. However,

new power brokers such as sovereign wealth funds

and private equity funds are powerful investors

in the global economy and have a key role in the

acquisition of infrastructure assets.

Schools, hospitals, roads and prisons are

being traded as commodities. Britain has the

most developed PPP market that now has a second-

ary market in which share equity in PPP projects

is bought and sold. Several hundred PPP projects,

with a total value of £.bn, have been sold to new

investors in the last decade.  PPP projects alone

were sold at a proﬁt of £m. Several second-

ary market funds, established to own and operate

PPP projects, have been sold to other companies.

Some PPP projects are now operated from oﬀshore

tax havens.

There are many failed Public Private

Partnerships and privatisation projects. Globally,

nearly , PPP projects, valued at over

US$bn, have been terminated or radically

reduced. This includes  water projects, many

covering entire regions and countries. Many other

projects never got oﬀ the drawing board, and were

abandoned. The claim that infrastructure PPPs

can be ‘pro-poor’ by achieving signiﬁcant politi-

cal and economic change is unfounded.

Democracy and accountability are under-

mined. Most PPP projects have little democratic

control or transparency. They are costly, poor

value and lack innovation.

Value for money methods are contrived and

ﬂawed. The evaluation of PPP projects through

Public Sector Comparator or value for money

assessments is contrived and fundamentally

ﬂawed because of the narrow scope of the crite-

ria and the failure to compare like with like.

PPPs and privatisation frequently result in

job losses, cuts in terms and conditions includ-

ing pensions and more fragmented trade union

organisation.

Reform of the Public Private Partnerships

model will achieve little. Powerful vested inter-

ests, including banks, construction companies,

lawyers and consultants, will ensure any re-as-

sessment will be focused on the minutiae of PPP

ﬁnance and risk transfer. They have no intention

of challenging the model, preferring to massage

contractual matters to ensure the ﬂow of deals

continues.

New public investment priorities are

needed. I propose radical changes in global ﬁnan-

cial markets, abandonment of PPPs, new controls

on existing PPPs, new public sector contracts, and

public management reform.

Stronger and broader alliances between

civic, community and trade union organisa-

tions need to be built, with blueprints and alter-

native plans to detail infrastructure needs and

strategic intervention in the planning and pro-

curement process. Public infrastructure supports

economic development, increases productivity,

generates employment, creates opportunities

for production and supply chains in construc-

tion, manufacturing, services, and improves

community well-being. It meets basic human

needs - homes, water, energy, transport, hospi-

tals, schools, sports and cultural facilities, com-

munications networks, courts, prisons, civic and

governmental buildings.

Dexter Whitﬁeld is Director of European Services Strategy Unit

and Adjunct Associate Professor, Australian Institute for Social

Research, University of Adelaide.

 Public private partnership

  

Public-sector alternatives to the infrastructure market

and Public Private Partnerships in Ireland, the US and worldwide

d e x t e r w h i t f i e l d

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GLOBAL AUCTION OF

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