Public Services International Research Unit (PSIRU) www.psiru.org PPPs By David Hall [email protected] January 2014 0. SUMMARY ...................................................................................................................................... 4 1. INTRODUCTION TO PPPS ................................................................................................................. 4 1.1. THE INVENTION OF PPPS: BENDING FISCAL RULES FOR PRIVATE PROFIT ............................................................ 4 1.2. RISE AND FALL: CAUGHT OUT BY THE CRISIS ................................................................................................. 6 1.3. PPPS IN PERSPECTIVE: A VERY SMALL CONTRIBUTION ................................................................................... 9 1.4. PPPS – A DESPERATE CAMPAIGN?........................................................................................................... 13 2. THE PUBLIC PROMOTION OF PPPS ................................................................................................. 13 2.1. PROPAGANDA AND SUBSIDIES: THE GLOBAL MARKETING NETWORK............................................................... 13 2.2. IFIS .................................................................................................................................................... 15 2.3. OTHER GLOBAL BODIES: WEF, G20, OECD, UN BODIES ............................................................................ 24 2.4. EU, GOVERNMENTS AND AUSTERITY: SUBSIDISING/ENCOURAGING PPPS ...................................................... 26 2.5. GOVERNMENTS AND DONORS ................................................................................................................ 27 2.6. CONSULTANTS: UNRELIABLE AND UNACCOUNTABLE ................................................................................... 29 2.7. IMPACT OF GLOBAL PPP NETWORKS IN SECTORS AND REGIONS .................................................................... 33 2.8. RESISTANCE ......................................................................................................................................... 37 2.9. OVERVIEW .......................................................................................................................................... 40 3. GENERAL PROBLEMS WITH PPPS ................................................................................................... 40 3.1. PPPS DO NOT ‘BRING EXTRA MONEY’ – THE EFFECT ON PUBLIC AND CONSUMER SPENDING .............................. 40 3.2. RISK TRANSFER .................................................................................................................................... 41 3.3. CORRUPTION, LIES AND SECRETS ............................................................................................................. 42 3.4. DAMAGING PUBLIC SERVICES, ENVIRONMENT AND WORKERS ....................................................................... 45 4. EVALUATING PPPS ........................................................................................................................ 49 PSIRU, Business School, University of Greenwich, Park Row, London SE10 9LS, U.K. Website: www.psiru.org Email: [email protected] Tel: +44-(0)208-331-9933 Prof. Stephen Thomas, David Hall (Director), Jane Lethbridge, Emanuele Lobina, Jenny Nguyen, Vladimir Popov, Sandra van Niekerk PSIRU University of Greenwich www.psiru.org 4.1. THE NECESSITY FOR COMPARISON WITH A PUBLIC OPTION ........................................................................... 49 4.2. A COMPARATIVE FRAMEWORK – VFM AND THE PUBLIC IMPACT .................................................................. 50 4.3. THE NEED FOR EVIDENCE-BASED COMPARISONS ........................................................................................ 51 4.4. COST OF CAPITAL – CHEAPER THROUGH GOVERNMENTS ............................................................................. 52 4.5. CONSTRUCTION COSTS: ON TIME AND ON BUDGET? ................................................................................... 55 4.6. EFFICIENCY .......................................................................................................................................... 55 4.7. TRANSACTION COSTS ............................................................................................................................ 58 4.8. UNCERTAINTY ...................................................................................................................................... 58 4.9. VALUE FOR MONEY: A SUMMARY OF THE EVIDENCE ................................................................................... 59 5. CONCLUSION: THE PUBLIC ALTERNATIVE ....................................................................................... 59 6. SELECT BIBLIOGRAPHY .................................................................................................................. 61 7. ANNEXE: CASE STUDIES ................................................................................................................. 64 7.1. CASE STUDY: LONDON TRANSPORT – THE ECONOMIC ADVANTAGES OF RE-MUNICIPALISING PPPS ..................... 64 7.2. CASE STUDY: PPPS IN INDIA ................................................................................................................... 68 7.3. CASE STUDY: CORRUPTION AND RENEGOTIATION IN CHILE AND COLOMBIA .................................................... 71 7.4. CASE STUDY: FISCAL PROBLEMS AND PPPS IN PORTUGAL AND CYPRUS .......................................................... 72 7.5. CASE STUDY: MUNICIPAL FUNDING AGENCIES ............................................................................................ 74 8. ANNEXE: CHALLENGING PPPS: A STRATEGIC FRAMEWORK ............................................................ 76 8.1. CHALLENGING THE CASE FOR PPPS.......................................................................................................... 76 8.2. CHALLENGING THE PROJECTS .................................................................................................................. 78 8.3. CHALLENGING THE OPERATION OF PPPS .................................................................................................. 82 8.4. ASK A CHILD ........................................................................................................................................ 84 9. ANNEXE: PENSION FUNDS AND PPPS............................................................................................. 86 9.1. PRESSURES FOR PENSION FUNDS TO INVEST IN PPPS .................................................................................. 86 9.2. FEW PENSION FUNDS INVEST DIRECTLY IN PPPS ......................................................................................... 86 9.3. UNCERTAINTY OF INDIRECT INVESTMENTS IN OTHER FUNDS ......................................................................... 86 9.4. PENSION FUND CONCERNS ABOUT INVESTING IN PPPS ............................................................................... 86 9.5. WIDER SOCIAL IMPACT OF INVESTING IN PPPS .......................................................................................... 87 10. ANNEXE: OECD AND WORLD BANK INSTITUTE ON GOVERNANCE AND DISCLOSURE ................... 87 10.1. OECD PRINCIPLES FOR GOVERNANCE OF PPP PROJECTS ......................................................................... 87 10.2. WORLD BANK INSTITUTE ................................................................................................................... 90 25/04/2018 Page 2 of 103 PSIRU University of Greenwich www.psiru.org NOTES ................................................................................................................................................. 92 25/04/2018 Page 3 of 103 PSIRU University of Greenwich www.psiru.org 0. Summary A public-private partnership (PPP) is a contract between government and a private company under which: • A private company finances, builds, and operates some element of a public service; and • The private company gets paid over a number of years, either through charges paid by users, or by payments from the public authority, or a combination of both. PPPs are now being promoted worldwide by global institutions and consultants. Development banks, national governments, the EU and donor agencies are providing subsidised public finance specifically for PPPs. Countries subject to IMF regimes, and other developing countries, are being subjected to political pressures and marketing campaigns. But experience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies. This report looks at the scale of PPPs, and the institutions promoting them; the lessons of experience with PPPs; and a process for systematic evaluation of PPPs against public sector options. It also sets out some ways of challenging PPP policies and programmes, and offers advice to pension funds considering investing in PPPs. 1. Introduction to PPPs 1.1. The invention of PPPs: bending fiscal rules for private profit “If you’re a good public sector, you shouldn’t need PPPs. If you’re bad, you shouldn’t go near them.” (Interviewee quoted in Robert Bain, ‘Review of Lessons from