Eurodad presents another PPP hoax
Published on 25 November 2018
We live in a time where it can be difficult to distinguish between fake news and real news. Eurodad, a European association of Civil Society Organisations is contributing to this confusion with its recent publication of a report on PPP called “History RePPPeated; How public private partnerships are failing”. The report was brought to my attention by a good friend who rightfully questioned the analysis and conclusions presented. Frankly speaking, questioning the validity of the report is a mild reproval. More appropriate would be to qualify the report as an outright hoax.
I first tried to understand what Eurodad is about and what they aim to achieve. And here already the confusion starts. One of their goals is to help achieve “publicly-backed private finance and investment agreements that accelerate development results”. So far so good one may think as this is in line with the concept of PPP and one of the reasons why PPPs are included as one of the key mechanisms to deliver the SDGs. Eurodad confirms this by stating “The increasing shift towards the private sector in development finance is based on the uncontested (!) assumption that greater private financial flows to developing countries are an effective way to support development, regardless (!) of the terms and conditions under which they take place”. Note the words ‘uncontested’ and ‘regardless of terms and conditions’. However, now the bewilderment begins, as Eurodad also states that “Eurodad research shows that public flows supporting private sector investments have failed to deliver positive development outcomes in the past”. Hmm, apparently the assumption that greater private financial flows are an effective way to support development is not that ‘uncontested’. They continue with “certain conditions need to be put in place to make sure that private investments have a positive impact on the poor”. This looks to be somewhat opposite from ‘regardless of terms and conditions’. It may be my lack of English but I fail to understand the consistency and coherence in their views regarding what they refer to as ‘publicly-backed private finance’.
And then the report. The report urges to “resist the encroachment of PPPs and to push instead for high-quality, publicly-funded (!), democratically-controlled, accountable public services. The wellbeing of our communities and societies depends on it.” A somewhat dramatic conclusion that totally contradicts their goal to achieve “publicly-backed private finance and investment agreements that accelerate development results”. Even more disturbing is the observation that their recommendation for a better future of the world is based on a review of only 10 PPPs which is a fraction of the thousands of PPPs that have been implemented in the past decades. And they even acknowledge that they “do not intend to generalise our conclusion in the vast and complex universe of PPPs….” Again, quite contradictory. One the one hand they do not want to generalise based on a review of 10 projects, though on the other hand they recommend to stop with PPP for the wellbeing of our world….
Aside from all these inconsistencies, Eurodad’s so called evidence-based analysis of the 10 projects is clearly lacking any understanding of infrastructure development in general and PPPs in particular and is tendentious at the least. It would go too far to comment on every example in detail (happy to do that for a modest consulting fee) though some observations to demonstrate the report’s shortcomings.
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The report fails to make a distinction between the investment decision and the procurement decision. The investment decision refers to whether a project is sensible or not and is typically based on a cost-benefit analysis whereas the procurement decision is based on whether a PPP is a more advantageous delivery scheme than traditional procurement. For example, the environmental and social issues faced by the power project in India are not the result of using PPP though are the result of the decision to develop the project at that location. Or the earthquakes caused by the offshore gas storage plant in Spain are not the result of using PPP though are the result of the decision to develop the project at that location.
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The report concludes that PPP as a delivery mechanism is failing though most of the issues highlighted are the result of inadequate preparation. As emphasised in many of the “how to do PPP” materials and often embedded in legislation and regulations, the use of competitive bidding is a requirement to achieve the aspired results. If governments opt to award contracts without competition it does not mean that PPP is not a good scheme. It means that they have not implemented the arrangement as it should have been done. Also a comprehensive appraisal of the project before tendering is a condition sine qua non. Ignoring the affordability analysis does not mean that PPP is not a good scheme. It means that government have failed to assess the affordability of the fiscal implications of the PPP or the willingness to pay, as they should have done. Or experiencing cost overruns because the project scope was amended after contract award does not mean that PPP is not a good scheme. It means that the project was not adequately defined upon conception and further development of the project (which is not unusual and would have impacted the project costs irrespective of the mode of delivery).
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Finally the report fails to acknowledge the intrinsic risks of infrastructure development. Project failures are perhaps more common than uncommon as confirmed among others by Professor Bent Flyvbjerg in his book on Megaprojects and Risks. If the examples referred to by Eurodad would have been implemented using conventional delivery schemes instead of PPP would these projects have been implemented successfully?
It is widely acknowledged that PPP is no guarantee for success and that PPPs can fail. They are complex arrangements that require thorough preparation, the use of experienced advisors, competitive bidding processes and government commitment. If governments want to cut corners and go for a quick and cheap process, they can expect failure. However, if governments do comply with the requirements for successful PPPs they can reap the benefits in terms of effective and efficient delivery of projects at a lower cost to society.
Eurodad should have been aware of these requirements and the implications of non-compliance. Maybe they should consider to participate in APMG’s Certified PPP Professional (CP3P) program so they can understand the motivations for using PPP and the requirements for successful implementation. Happy to enrol them in our courses.
History RePPPeated; the fact that we don’t do it right, doesn’t mean that it isn’t right.