PHM-Exch> Beware of Public Private Partnerships

[Claudio Schuftan]

Beware Public Private Partnerships

Jomo Kwame Sundaram

KUALA LUMPUR, Nov 28 (IPS)  - Public-private partnerships (PPPs) are
essentially long-term contracts, underwritten by government guarantees,
with which the private sector builds (and sometimes runs) major
infrastructure projects or services traditionally provided by the state,
such as hospitals, schools, roads, railways, water, sanitation and energy.

Embracing PPPs
PPPs are promoted by many OECD governments, and some multilateral
development banks – especially the World Bank – as the solution to the
shortfall in financing needed to achieve development including the
Sustainable Development Goals (SDGs).

Since the late 1990s, many countries have embraced PPPs for areas ranging
from healthcare and education to transport and infrastructure with
problematic consequences. They were less common in developing countries,
but that is changing rapidly, with many countries in Asia, Latin America
and Africa now passing enabling legislation and initiating PPP projects.

Nevertheless, experiences with PPPs have been largely, although not
exclusively negative, and very few PPPs have delivered results in the
public interest. However, the recent period has seen tremendous enthusiasm
for PPPs.

Financing PPPs
Undoubtedly, there has been some success with infrastructure PPPs, but
these appear to have been due to the financing arrangements. Generally,
PPPs for social services, e.g., for hospitals and schools, have much poorer
records compared to some infrastructure projects.

One can have good financing arrangements, e.g., due to low interest rates,
for a bad PPP project. All over the world, private finance still accounts
for a small share of infrastructure financing. However, concessional
financing arrangements cannot save a poor project although they may reduce
its financial burden.

PPPs often involve public financing for developing countries to ‘sweeten'
the bid from an influential private company from the country concerned.
‘Blended finance', export financing, and new aid arrangements have become
means for governments to support their corporations' bids for PPP contracts
abroad, especially in developing countries. Such business support
arrangements are increasingly passed off and counted as overseas
development assistance (ODA).

Undermining rights
PPPs often increase fees or charges for users of services. PPP contracts
often undermine consumer, citizen and human rights, and the state's
obligation to regulate in the public interest. PPPs can limit government
capacity to enact new policies – e..g., strengthened environmental or
social regulations – that might affect certain projects.

PPPs are now an increasingly popular way to finance ‘mega-infrastructure
projects', but dams, highways, large-scale plantations, pipelines, and
energy or transport infrastructure can ruin habitats, displace communities
and devastate natural resources. PPPs have also led to forced displacement,
repression and other abuses of local communities and indigenous peoples.

There are also growing numbers of ‘dirty' energy PPPs, exacerbating
environmental destruction, undermining progressive environmental
conservation efforts and worsening climate change. Typically, social and
environmental legislation is weakened to create attractive business
environments for PPPs.

PPPs often expensive, risky
In many cases, PPPs are the most expensive financing option, and hardly
cost-effective compared to good government procurement. They cost
governments – and citizens – significantly more in the long run than if the
projects had been directly financed with government borrowing.

It is important to establish the circumstances required to make efficiency
gains, and to recognize the longer term fiscal implications due to
PPP-related ‘contingent liabilities'. Shifting public debt to government
guaranteed debt does not really reduce government debt liabilities, but
obscures accountability as it is taken ‘off-budget' and no longer subject
to parliamentary, let alone public scrutiny.

Hence, PPPs are attractive because they can be hidden ‘off balance sheet'
so they do not show up in budget and government debt figures, giving the
illusion of ‘free money'. Hence, despite claims to the contrary, PPPs are
often riskier for governments than for the private companies involved, as
the government may be required to step in to assume costs if things go
wrong.

Marginalizing public interest
Undoubtedly, PPP contracts are typically complex. Negotiations are subject
to commercial confidentiality, making it hard for parliamentarians, let
alone civil society, to scrutinize them. This lack of transparency
significantly increases the likelihood of corruption and undermines
democratic accountability.

PPPs also undermine democracy and national sovereignty as contracts tend to
be opaque and subject to unaccountable international adjudication due to
investor-state dispute settlement (ISDS) commitments rather than national
or international courts. Under World Bank-proposed PPP contracts, national
governments can even be liable for losses due to strikes by workers.

Thus, PPPs tend to exacerbate inequality by enriching the wealthy who
invest in and profit from PPP projects, thus accumulating even more wealth
at the expense of others, especially the poor and the vulnerable. The more
governments pay to private firms, the less they can spend on essential
social services, such as universal social protection and healthcare. Hence,
PPP experiences suggest not only higher financial costs, but also modest
efficiency gains.

Government procurement viable
One alternative, of course, is government or public procurement. Generally,
PPPs are much more expensive than government procurement despite government
subsidized credit. With a competent government doing good work, government
procurement can be efficient and low cost.

Yet, international trade and investment agreements are eroding the rights
of governments to pursue such alternatives in the national interest. With a
competent government and an incorruptible civil service or competent
accountable consultants doing good work, efficient government procurement
has generally proved far more cost-effective than PPP alternatives. It is
therefore important to establish under what circumstances one can achieve
gains and when these are unlikely.

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