KUALA LUMPUR, Malaysia, Nov 8 (IPS) – Public-private partnerships (PPPs) for infrastructure and services are both costly and risky. Worse, PPPs typically fail to ensure universal, let alone equitable, access to public services.
Public-private cooperation?
PPPs typically involve long-term contractual agreements, where private companies provide infrastructure and services traditionally provided by governments. In recent years, PPPs have built or managed hospitals, schools, prisons, roads, airports, railways, water and sanitation facilities.
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Most International Financial Institutions (IFIs) advise governments to guarantee profits for their private partners. The IFIs continue to urge governments to de-risk commercial providers to attract their investments.
Private investor preferences for specific types of PPPs can vary over time and depending on circumstances, often reflecting changing needs and priorities. Because one type does not fit all, changing circumstances and preferences have increased the variety of PPPs.
PPP problems
PPPs are much more complex than the stories of their cheerleaders suggest. Their negative impacts on infrastructure and public services have been highlighted again in a Eurodad-led report. Public spending increases as governments bear private costs and risks.
Following the advice of the World Bank and other IFIs, national authorities are attracting commercial financial investments by appealing to private greed. PPPs have been used to “reduce” such investments, using their terms to guarantee profits for private investors.
The report also highlighted the negative impact of PPPs on democratic governance. PPP schemes generally lack transparency and rarely include prior consultation with affected communities. They are therefore more susceptible to corruption and abuse.
While private partners are assured of profits, their PPPs can still fail. In recent years, the budget and other costs of PPPs have continued to rise as their deficits widen, despite their rising profitability. As such problems have grown, criticism and dissent have also emerged.
Why do PPPs fail?
PPPs are increasingly touted as the magic solution to many problems, particularly financial constraints, poor management and poor outcomes. PPPs have become popular among elites in the global South, where their ‘middle classes’ have been seduced by the promise of better services and ‘trickle-down’.
The private sector would be more efficient and better able to deliver public services, including energy, education, health care, water and sanitation. But better value for money has rarely been achieved, as many studies show. Instead, the reverse is more typical.
A 2020 study by the European Federation of Public Service Unions and Eurodad identified eight key reasons why PPPs in Europe have not improved outcomes.
First, PPPs rarely raised additional money. Instead, they have typically incurred more government debt in the form of government guarantees, rather than direct loans. But such additional government debts have often been hidden from the public.
Second, private commercial loans typically cost much more than government loans. Third, public authorities, especially central governments, still bear the ultimate responsibility, especially in the event of project failure.
Fourth, PPPs have rarely delivered better value for money than reasonably managed public projects. Fifth, the apparent efficiency gains of PPPs are largely due to risky cost savings, for example in public infrastructure or healthcare.
Sixth, PPPs distort public policy priorities, usually requiring even more cost savings. Seventh, PPPs have rarely delivered both ‘on time’ and ‘on budget’ results. Eighth, PPP agreements are generally opaque and non-transparent, and are often fraught with abuse and corruption.
From early 2020, the Covid-19 pandemic has exposed the negative long-term effects of previous budget cuts and underfunding of public health. More recently, inflation, stagnation and more extreme weather events have exposed other vulnerabilities and their causes.
What can be done?
As the world faces multiple and interconnected crises, PPPs offer false and even dangerous solutions. Eurodad has made policy recommendations to national governments and development finance institutions (DFIs) to improve infrastructure and financing of public services.
• Stop promoting PPPs. The World Bank, IMF, regional development banks and DFIs should all end the promotion of PPPs, especially for social services. Access to healthcare, education, water and sanitation should not depend on the ability to pay.
• Budgetary and other major PPP risks must be publicly acknowledged. Governments should be warned about the generally poor performance of PPPs, and about the pros and cons of different financing schemes. DFIs should all more effectively finance national plans for sustainable and equitable development.
Countries should be helped to find the best financing tools to deliver responsible, transparent, gender-sensitive, environmentally and fiscally sustainable public infrastructure and social services in line with national and multilateral commitments.
• Informed public consultations should always precede any agreement on infrastructure and public service provision by PPPs. These should include guaranteeing the rights of all affected communities, including those to a fair resolution or compensation.
• Implement strict and transparent government regulation, especially for government expenditure, the value of PPP contracts, the impact of projects and the long-term budgetary implications. The general interest must always prevail over commercial interest.
DFIs may only finance projects that serve the public interest. Appropriate publicly funded public services should be promoted, with transparent contracts for and responsible reporting on the delivery of social services and infrastructure projects.
Often, PPPs have proven to be budget fraud, exacerbating rather than reducing national budget deficits. PPPs are far from the financial panacea they are touted as. However, PPPs have proven to be blanks, making a lot of noise but delivering little real benefit.
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© Inter Press Service (2023) — All rights reservedOriginal source: Inter Press Service