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World Bank must push for greater transparency in PPP projects, urge CSOs

Added 01 Mar 2016
Public Private Partnerships (PPPs) are not transparent enough, and face criticism from civil society organisations (CSOs) and others for being too expensive, and a risky use of taxpayers’ money. On Monday (29 February) more than 50 CSOs have written to the World Bank Group asking the institution to push for more financial transparency around PPPs. Please read the submission here

The organisations, which come from more than 20 countries in addition to regional and international networks, have written to the Bank as part of a consultation process in response to the publication of ‘A Framework for Disclosure in Public-Private Partnerships’. The submission calls on the Bank to explicitly endorse practices that ensure that all costs of PPPs are made public – in other words are put ‘on balance sheet’. Currently a lot of the associated costs, such as contingent liabilities, are ‘off balance sheet’ hiding the true costs to governments – which encourages bad decision-making, hampers oversight by parliaments and others, and can store up major problems for the future.

PPPs – long-term, contractual arrangements between the state and a private sector company in which the private sector participates in the supply of assets and services - are increasingly promoted as a way to finance development projects such as hospitals, schools and infrastructure. Eurodad and partners have criticised this agenda, as they are an expensive and risky way for governments to fund projects, and there is little information available about why and how individual projects are chosen and delivered. 

The World Bank Group as PPPs ‘standard-setter’ 
The Bank has been a very active player in relation to PPPs for many years. It has provided finance and advice to PPP projects and its leadership is often followed by regional development banks and European development finance institutions. The Bank has also been the G20’s go-to agency on PPPs, producing several reports on the issue to inform the G20’s plan to scale up their use. 

This framework for disclosure in PPPs was drafted by the Bank and submitted to the G20 in 2015. Of the many documents submitted last year, this is the first one opened for public consultation.

A strong call for greater transparency in accounting of PPPs 
In the joint submission, CSOs call on the Bank to expand the list of elements proposed for disclosure. According to CSOs, the framework omits disclosure of key financial information, such as cost-benefit analysis of PPPs over the lifetime of the project, taking into account the full fiscal implications in the long-term, and the risk comparison of different financing mechanisms - including the option of public borrowing. 

In line with Eurodad’s demands, CSOs stress that the framework for disclosure should be an opportunity for the Bank to make an explicit endorsement of ‘on balance sheet’ and transparent accounting of PPPs. This is in line with International Public Sector Accounting Standards (IPSAS). PPPs should be included in national accounts, i.e. the costs of PPPs should be registered as a government debt, and therefore be part of a sustainability analysis, rather than being ‘off balance sheet’. This would remove current perverse incentives in favour of PPPs and allow for a greater level of transparency about the true cost to the public purse.

A resounding call for the highest standard of transparency

Full disclosure of contracts and monitoring reports is essential to allow for democratic accountability of the whole process. This empowers government officials to put pressure on private sector companies to comply with contract clauses, and discourages corrupt practices.

A robust framework for disclosure is also a primary and necessary safeguard against some of the risks raised by PPPs. As Eurodad’s report, ‘What lies beneath?’ shows, such risks can have social and environmental impacts, affect respect for human rights, democratic accountability and lead to macroeconomic problems, including hidden public indebtedness arising from PPPs. The need for such a safeguard is particularly acute in light of the G20’s recent decision to encourage so-called ‘transformational’ projects, which CSOs understand as a controversial agenda that increased support for extremely large-scale infrastructure project (‘megaprojects’), mainly financed by international private capital. As research by academics has shown, this raises a red flag in terms of designing, implementing and monitoring projects.

The framework supports the presumption of disclosure and includes recommendations on how to implement it. However, CSOs are concerned that it is not clear whether these recommendations will be transformed into requirements for PPP projects. Importantly, the public has a right to information and the best national standards assume disclosure of all documents. The Bank also adopted this principle in relation to its lending to governments. CSOs firmly believe, however, that a general exemption of commercial confidentiality, as mentioned in the framework, could easily undo the benefits of full disclosure. There are key questions that remain unanswered in the framework. For instance: 
  • who determines what is commercially confidential? 
  • how this is placed against the ‘public interest’? 
  • which criteria should be used to determine what is and is not ‘public interest’? 
  • how much power does the public authority have to determine the period during which key information may remain confidential?
In addition, for the commercially confidential argument to be valid, concrete evidence of the potential harm that would be caused as a result of disclosure needs to be put forward.

Overall, CSOs stress that if countries have low capacity to pursue the highest standards of transparency, PPPs should be discouraged until these countries have built their capacity. In countries where the capacity for disclosure is not up to speed, a PPP is not a viable option and the Bank should unambiguously state so in the framework.

What’s next?
CSOs welcome the opportunity to comment on this document and hope similar documents on PPPs, including those that have already been submitted to the G20 such as the Report on Recommended PPP Contractual Provisions, will also be opened for consultation. CSOs also request that future consultations happen before, rather than after, submission to the G20. It is important that the Bank avoid projecting the impression that consultations with other stakeholders are a mere formality devoid of a real chance of impact. Although there is no concrete timeline for the final framework to be released, CSOs will look forward to substantial improvements.