Public-Private Partnerships: Benefiting or hindering international development?
By Sabá Loftus, Social Watch
On the 18th March, the Public Services International Research Unit (PSIRU) hosted a side event in New York to promote the report “Why Public-Private-Partnerships don’t work”. The report assessed the impact of Public-Private Partnerships (PPPs) actually undertaken in rich and poor countries. These global case studies show that there is no evidence that PPPs are cheaper or more convenient for governments in the long-term.
Public Private Partnerships (PPPs) are essentially a government service or private business venture which is funded and operated through a long-term agreement between government and private sector companies. These can come in different forms, from building roads or schools at a small scale, or even electricity grids on a larger scale. There are several reasons why these partnerships can be beneficial. Governments often are under strict controls and regulations for how public funds are spent and sometimes do not have the capacity or resources to initiate or maintain various services. In contrast, private sector companies often have access to such resources, including large investment capital, and have the capacity to undertake larger scale projects. A private partner delivers and funds public services using a capital asset, sharing the associated risk.
The private sector are not willing to invest unless they think they will get a return on their investment. They are for profit and as such it is understandable that the private sector prefer to finance lucrative infrastructure projects. Agreements also allow the private sector to sue the government if they appear to be competing with them –an example given was when drivers avoid a toll road by taking backroads and the villagers get the local authorities to fix or expand that road. The local authorities then got sued by the company who made the toll road for loss of earnings. The report “Why Public-Private-Partnerships don’t work” provides numerous case studies of where PPPs proved to be costly, did not bring new money, masked corruption, and distorted policy priorities. But as one speaker noted, “Shouldn’t we be suspicious when the private sector comes with a bag of money to solve our problems?”
The report provides evidence that far from being a solution for countries under fiscal constraints, PPPs can instead “worsen fiscal problems”, as in the cases of Cyprus, Greece, Ireland, Portugal, Spain and the UK. Such arrangements can legally lock governments into agreements that they don’t profit from, yet assume the majority of the risk. For example, India is using public finance to “bail out existing PPPs which are now unable to find private finance”.
Globally, international consultant firms, are promoting PPPs as a solution to public development financing. The PSIRU report disproves a significant amount of the existing reports or forecasts on why PPPs are a good alternative to public funding. For example, in 2007 McKinsey published a report which “claimed the private sector could provide over half of the $30 billion investment needed to develop healthcare in Africa over the next 10 years… but by 2012 it had resulted in almost no private finance.” (p21). PPPs thus appear counterproductive, expensive and an inefficient. The question remains: are PPPs instrumental in facilitating corruption or push debts beyond political cycles, and who is responsible for monitoring this?
Another consideration is whether PPPs are merely an “accounting trick”, a way for governments to navigate around their own constraints on public borrowing while providing long-term state guarantees for profits to private companies. It is clear that for the Post-2015 Development Agenda to succeed, there will need to be both adequate funding for implementation and the political commitment to change. At an international level, there appears to be a focus on partnering with the private sector as a potential solution to the emerging financing gap of “ambitious aspirations” to develop sustainably and the political commitment, but whether PPPs are the best solution to this remains in question. However, in an environment where sovereign debt is growing and there are stricter controls on public borrowing, should PPPs be a used as a stopgap solution for governments?
According to the discussion in the side event and the PSIRU report, it seems that the common taxpayer bears the brunt of paying for services that should be funded with public finance and paying for the fallout when things do not go as planned. Despite this, PPPs continue to be promoted by international financial institutions, such as the G20 and OECD, and are even being considered in intergovernmental negotiations at the UN for the Sustainable Development Goals and Financing for Development (Zero Draft Report para 52).
It remains unclear why so much emphasis is being placed on PPPs. Questions regarding the political commitment to achieving change remain and there is the ever growing concern that PPPs may just be another way of repackaging special interest and maintaining the status quo.