PHM-Exch> Public-Private Partnerships Fad Fails

[Claudio Schuftan]

From: Jomo <jomoks at yahoo.com>

http://ipsnews.net/2019/05/public-private-partnerships-fad-fails


*Public-Private Partnerships Fad Fails*

*Jomo Kwame Sundaram*

KUALA LUMPUR, Malaysia, May 21 (IPS)  - After the failure and abuses of
privatization and contracting-out services from the 1980s, there has been
renewed appreciation for the role of the state or government. Earlier
promoters of privatization have taken a step backward, only to take two
more forward to instead promote public-private partnerships (PPPs).

PPPs for most purposes
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.

PPPs are promoted by many governments associated with the Organization for
Economic Co-operation and Development (OECD) and some multilateral
development banks – especially the World Bank – as the solution to the
financing shortfall needed to achieve development, including the
Sustainable Development Goals (SDGs).

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

PPPs are now an increasingly popular means to finance mega-infrastructure
projects, but dams, highways, large plantations, pipelines and energy or
transport infrastructure can ruin habitats, displace communities and
devastate natural resources. Typically, social and environmental
legislation is weakened or circumscribed to attract investors for PPPs.

There are also a growing number of ‘dirty' energy PPPs, devastating the
environment, undermining progressive environmental conservation efforts and
exacerbating climate change. PPPs have also led to forced displacement,
repression and other abuses of local communities, indigenous peoples,
displaced farmers and labourers among others.

PPP financing more public than private
Nevertheless, experiences with PPPs have been largely, although not
exclusively, negative, and very few PPPs have delivered results in the
public interest. There has been some supposed success with infrastructure
PPPs, mainly due to financing arrangements. Generally, PPPs for hospitals
and schools have much poorer records compared to infrastructure.

One can have good financing arrangements, due to preferential interest
rates, for a poor PPP project. Nevertheless, private finance all over the
world still accounts for a small share of infrastructure financing.
However, good financing arrangements will not make a bad PPP project any
better.

PPPs typically involve public financing for developing countries to attract
bids from influential private companies, often from abroad. ‘Blended
finance', export financing and new supposed aid arrangements have become
means for foreign governments to support powerful corporations bidding for
PPP contracts abroad, especially in developing countries. Incredibly, such
arrangements are increasingly counted as overseas development assistance,
as North-South, South-South or triangular development cooperation.

Like privatization, PPPs often increase fees or charges for users. PPP
contracts often undermine the public interest in other ways, with generous
host government incentives and other privileges, often compromising and
undermining the state's obligation to regulate in the public interest. PPPs
can limit government capacity to enact new legislation and other policies –
such as strengthened environmental or social regulations – that might
adversely affect or constrain investor interests.

PPPs – public pain, private gain?
PPP contracts are typically complex. Negotiations are subject to commercial
confidentiality, making it hard for civil society and parliamentarians to
provide checks and balances in the public and national interest. Such
limited transparency significantly increases the likelihood of corruption
and undermines democratic accountability.

It is important to establish the circumstances required to achieve
efficiency gains and to recognize the longer-term fiscal implications of
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 is no longer subject
to parliamentary, let alone public scrutiny.

Hence, PPPs are more likely to be abused because they are typically ‘off
balance sheet' so that they do not show up as government debt, giving the
illusion of ‘easy money' or credit. Despite claims to the contrary, PPPs
are typically riskier for governments than for the private companies
involved, as the government may be required to step in to assume costs and
liabilities if things go wrong.

PPPs also undermine democracy and national sovereignty as such contracts
tend not to be transparent 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, for example, national governments can even be liable for
losses due to strikes by workers.

Government procurement
One alternative, of course, is government or public procurement. In many
instances, PPPs have become the most expensive financing option and much
less cost-effective than transparent competitive government procurement.
They cost governments significantly more in the long run than if the
government procures on an open competitive basis, or if projects are
directly financed by government borrowings.

Generally, PPPs are much more expensive than government procurement despite
government subsidized credit. However, with a competent government doing
good work, government procurement can be efficient and low cost.

With a competent government and accountable consultants, efficient
government procurement has generally proved far more cost-effective than
PPP alternatives. It is therefore important to establish when and why
meaningful gains can be achieved through PPPs, and when these are unlikely.

***
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Excerpt: *After the failure and abuses of privatization became apparent,
public-private partnerships have since been promoted ostensibly to mobilize
private finance for the public purpose. In all too many cases, PPPs have
socialized costs and losses while ensuring private financial gains.*
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