PPP: learning from the past

 

It is not difficult to find examples of failed public-private partnerships (PPP). From Mexico to France, and from Australia to the US there are many many examples of how PPP has failed to deliver the benefits intended. In France for example the trend to use PPP simply to keep expenditure off the public balance sheet has led to some disastrous projects and highway projects in the Americas have become roads to bankruptcy.

However it is not always a disaster and it doesn’t have to be.  Involving private finance in infrastructure from the very early days can bring a number of benefits and ensure that public projects are delivered in a timely and effective way. Sometimes it is the only way that projects can be delivered at all. But it is crucial that private firms are held to account throughout the life of the project with contracts that demand high performance levels for the full term, and like London’s forthcoming Thames Tideway sewer tunnel, that projects are structured to ensure that the cost of capital is as low as possible. Here the consortia tendered the cost of capital at 2.49% – significantly lower than the 6-8% that might typically be required for private returns. One of the biggest criticisms of PPP is that private money costs more than public money. It doesn’t have to.

So I was pleased to be asked by The Guardian (article here) to look at examples where PPP has worked, or is working, for companies and the public sector. Governments around the world, including US President Elect Donald Trump are looking to private finance to fund much needed infrastructure. Highlighting the ways in which this has been successfully achieved might help avoid some of the contractual catastrophes of the past. Bankers will tell you that PPP works best in sectors with clear revenue streams such as energy and aviation. For roads and rail it is much more difficult to make this work.

There are exceptions of course and A contract for 65 high capacity metro trains signed in November is the largest single order of new trains in the history of the Australian state of Victoria. It is also the state’s first ever public private partnership (PPP) for manufacturing. Unlike traditional contracts where trains are purchased as a commodity manufactured in the preferred location of the supplier, this partnership with the Evolution Rail consortium will ensure that sixty percent of manufacturing will happen locally creating 1,100 much needed jobs.

Job creation is key. Like the US, Australia has battled with the decline in local production industries particularly in the automotive sector. Ford closed its plant in October 2016 and Toyota and Holden will follow in 2017 leading to thousands of job losses. Not only does the new AUS $2bn PPP demand local manufacturing, further partnerships with Toyota and other local organisations will ensure that staff from the automotive sector are transitioned into the growing rail industry.

This and many other projects are covered in The Guardian article. Thanks to all that took the time to discuss the topic: ARCADIS, Pavegen, Mott MacDonald, Washington DDoT, Skanska Infrastructure Development, La Guardia Gateway Partners, Victoria Ministry for Public Transport and Major Projects and the IFC.

 

 

 

 

 

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