PFI is dead, long life PPP?
Published on 3 November, 2018
A shock wave went through the international PPP community this week. The UK Chancellor Phillip Hammond announced the end of PFI in his Budget Speech 2018. “I never will sign off a PFI contract. The government will abolish the use of PFI and PF2”, he firmly stated. The UK ends PFI! The country that has fathered the development of PPP worldwide for the past 3 decades. I still recall the early days of PPP in the Netherlands when I was spearheading the PPP unit at the Engineering Division of the Ministry of Transport and UK advisors were helping us to develop the framework for our PPP Models and supporting us in the implementation of our pilot PPP program. And still, UK consultants are roaming the globe preaching the PFI gospel. I have worked with many of them in countries like Kyrgyzstan, Kenya, Saudi Arabia, Turkey, Jordan and so on. We used the many PFI guidance materials prepared by HM Treasury as inspiration for drafting PPP regulations and manuals. Today these are still a prime source of reference for some of the global standards on PPP such as the World Bank’s PPP Reference Guide or APMG’s PPP Certification Guide.
Why? Yes, the massive London Underground PFI failure was an embarrassment for the UK. Yes, there are issues with some of the many hospital PFI projects. Yes, the leading contractor Carillion bankruptcy was a blow to a lot of PFI projects in which they participated. However, for every PFI failure one can quote as many if not more PFI successes. Has the PFI program on average not delivered more projects on time and within budget and with a lower cost to society in comparison with traditional delivery schemes? Are the failures not examples of poor execution rather than fundamental flaws in the concept? Are we cognisant of the intrinsic risk nature of infrastructure development? Highways England’s chief executive Jim O’Sullivan stated in the media this year that he believed “PF2 has been well thought out and well argued”. The roads boss argued that “there are about £400m successful PFIs in operation; PF2 is an improvement on PFI and seems to work well on roads”.
And what should the rest of world do? The majority of countries have or are in the process of developing frameworks for enabling and facilitating PPP programs and are actively pursuing the use of PPP for meeting their infrastructure needs in a more effective and efficient manner. The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015 (yes, all!), explicitly encourages and promotes the use of PPP. The global development community (not only the World Bank) continuously supports the development of PPP among others through the recent adaptation of the global Certified PPP Professional program as managed by APMG, which aims to strengthen and harmonize the PPP capacity throughout the world. Already over 2000 professionals from 101 (!) countries are participating in this program.
In the end of the day, governments have the responsibility to deliver public infrastructure and services in an effective and efficient manner. To do so, they have to review all possible options available to meet this responsibility. That would from the outset also includes the different PPP modes including the PFI scheme (or any improved variant) given their proven merits as confirmed by ample research from around the world. Closing the door for any delivery scheme does not appear to qualify as an open mind. Politicians should move away from policy making based on anecdotical evidence and focus more on empirical evidence. Then again, maybe we live in a time where decisions tend to be driven more by emotions and populism rather than rationality…..