Research finds that public private partnerships are expensive, risky and lack transparency
A new report examining public private partnerships (PPPs) as a way to finance development projects finds that they are risky and expensive and urges governments and financial institutions to stop hiding their true costs.
PPPs are agreements through which private financiers essentially replace governments as providers and funders of traditional public services like schools, hospitals and roads.
What lies beneath?: A critical assessment of public private partnerships and their impact on sustainable development examines the nature and impact of PPPs ahead of the landmark Financing for Development (FfD) conference in Addis Ababa next week (13-16 July). It analyses existing literature on PPPs and the experiences of Tanzania and Peru, based on the findings of the networks Afrodad and Latindadd.
European governments in particular, and financial institutions such as the World Bank, are planning to push the involvement of the private sector in development during the summit, despite the strong reservations of many experts in developing countries.
Report author Maria Jose Romero, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad), said: “PPPs are being promoted by our leaders as the way to fund infrastructure projects and public services such as health and education, which are traditionally provided by the state. The costs of these projects are often very high, the public sector takes on most of the risks, and there is often a veil of secrecy over how these projects are negotiated.”
“Our governments must take a step back during the Addis Ababa Summit and put development needs - and not the needs of private investors – first.”
Governments often hide the true costs of PPPs because they can keep the project and its contingent liabilities (or future potential debt) ‘off balance sheet’.
Overall, the report finds that:
• PPPs are, in most cases, the most expensive method of financing, significantly increasing the cost to the public purse.
• PPPs are typically very complex to negotiate and implement and all too often entail higher construction and transaction costs than public works.
• PPPs are all too often a risky way of financing for public institutions.
• The evidence of impact of PPPs on efficiency is very limited and weak.
• PPPs face important challenges when it comes to reducing poverty and inequality, while avoiding negative impacts on the environment.
• Implementing PPPs poses important capacity constraints to the public sector, and particularly in developing countries.
• PPPs suffer from low transparency and limited public scrutiny, which undermines democratic accountability.
Romero said: “Although there is some evidence that PPPs can improve the efficiency of certain projects, there are several examples of PPP arrangements that have gone badly wrong, and that leave a lasting legacy.
“This report shows that promoting PPPs in a non-critical way is a mistake. Governments and financial institutions should focus on developing the right tools at country level to identify whether – and under what circumstances – it is desirable to use PPPs.”
As the cases of Peru and Tanzania show, the experience at the country level is mixed. PPPs suffer from low transparency and limited public scrutiny, which undermines democratic accountability. In some cases, PPP projects have resulted in public discontent due to higher costs and corruption allegations. (see examples of problems that occurred in PPP projects in Notes to Editors).
The report recommends that governments stop hiding the true cost of PPPs and that decision-making about PPPs is more transparent and accountable. It also recommends that development outcomes are at the forefront of any project and that developing countries are in the driving seat when principles and criteria to assess and implement PPPs are developed. The main report, and a summary briefing, can be found here: www.eurodad.org/whatliesbeneath
For more information, please contact Julia Ravenscroft, Communications Manager at Eurodad, on + 32 2 893 0854 or email@example.com.
Notes to editor:
Definition of a PPP in the report:
The acronym PPP is used to describe lots of very different types of arrangements. For this report, they are described as:
• a medium- or long-term contractual arrangement between the state and a private sector company;
• an arrangement in which the private sector participates in the supply of assets and services traditionally provided by government, such as hospitals, schools, prisons, roads, bridges, tunnels, railways, water and sanitation and energy;
• an arrangement involving some form of risk sharing between the public and private sector.
Examples of PPPs:
1. The case of The Queen ‘Mamohato Memorial Hospital in Lethoso. The hospital was built to replace Lesotho’s old main public hospital under a public–private partnership (PPP) – the first of its kind in a low-income country. The PPP signed in 2009 was described as opening a new era for private sector involvement in healthcare in Africa, and was seen as the International Finance Corporation (IFC)’s flagship model to be replicated across the continent. Instead, the Ministry of Health in one of the poorest and most unequal countries in the world is locked into an 18-year contract that is already using more than half of its health budget (51 per cent), while providing high returns (25 per cent) to the private partner. Read more here: https://www.oxfam.org/sites/www.oxfam.org/files/bn-dangerous-diversion-lesotho-health-ppp-070414-en.pdf
2. The Bus Rapid Transit in Dar es Salaam, Tanzania. The Dar es Salaam Rapid Transit (DART), selected as the Bus Rapid Transit forerunner in Africa in the early 2000s, faces implementation delays up to the present day. According to research from the University of London, the World Bank has been one of the main promoters of this project, providing funds linked to the PPP model for its implementation: “a conditionality attached to World Bank lending is that private companies operate the buses, [while] the public sector oversees the systems and carries out quality controls on the service providers.” The conclusions of the research shows that the “slow progress of DART stems from the tepid commitment to the project by the Tanzanian government, which reflects its attempt to bring into harmony the conflicting interests of the World Bank and the demands of a number of local actors to whom it is electorally accountable.”
The Financing for Development Summit:
The Financing for Development Conference (FfD) will take place in Addis Ababa 13-16 July. It is a summit during which world leaders will decide how to finance the Sustainable Development Goals, which will guide nations in their objective to eradicate poverty by 2030. More information can be found here: http://www.un.org/esa/ffd/