Today, the European Network on Debt and Development (Eurodad) is presenting a new report on public–private partnerships (PPP) at the European Parliament in Brussels. The report provides an in-depth analysis of 10 different PPP projects in Colombia, France, India, Indonesia, Lesotho, Liberia, Peru, Spain, and Sweden. The conclusions confirm earlier assessments of PPPs, including by the EU Court of Auditors, as investment strategies that are high-risk for the government and public debt, as well as with significantly negative impacts on society.
The report concludes that:
- All 10 projects came with a high cost for the public purse, an excessive level of risk for the public sector and, therefore, a heavy burden for citizens.
- Every single PPP studied was riskier for the state than for the private companies involved, as the public sector was required to step in and assume the costs when things went wrong.
- Five of the 10 PPPs reviewed impacted negatively on the poor, and contributed to an increase in the divide between rich and poor.
- Three of the PPPs resulted in serious social and environmental impacts.
- Nine out of 10 of the projects lacked transparency and/or failed to consult with affected communities, and undermined democratic accountability.
- All cases showed PPPs were complex to negotiate and implement, and that they required specific state capacities to negotiate in the public interest, including during the renegotiation process.
- Three of the PPP contracts had to be cancelled due to an evident failure in the process, including proper due diligence to identify the possible impacts of the project.
As Exit has reported in the past, the Albanian government has aggressively pursued PPPs as a way to hide public debt and subsidize a small cast of oligarchs that enriches itself with public money. Despite these expert evaluations and repeated warnings of World Bank and IMF, the government has insisted that PPPs do not carry any fiscal risk.
The public cost of Albanian PPPs in 2018 alone is valued at €70 million, while this year the government of Prime Minister Edi Rama has handed out several new concessions (or “upgrades”) to political and business allies, including for the Rruga e Kombit, the Tirana Bus Station, and €10.8 million/km highway, and two airports. All with negative impacts on society, nature, and the state budget. However, PPPs remain attractive as a way of “hiding” future costs. The Eurodad report comments:
Many projects have been procured as PPPs simply to circumvent budget constraints and to postpone the recording of fiscal costs. Some accounting practices allow governments to keep the cost of the project and its contingent liabilities “off balance sheet”. This ends up exposing public finances to excessive fiscal risks. Current austerity measures and orthodox policy prescriptions that encourage a low fiscal deficit also create a perverse incentive in favour of PPPs.
In order to counter the spread of this risky and damaging fiscal tool, Eurodad issued the following recommendations to the World Bank, the IMF, and other development banks:
- Halt the aggressive promotion and incentivising of PPPs for social and economic infrastructure financing, and publicly recognise the financial and other significant risks that PPPs entail.
- Support countries in finding the best financing method for public services in social and economic infrastructure, which are responsible, transparent, environmentally and fiscally sustainable, and in line with their human rights obligations. Prioritise tax revenues, whilst augmenting them with long-term external, and domestic, concessional and non- concessional finance, where appropriate.
- Ensure good and democratic governance is in place before pursuing large-scale infrastructure or service developments. This should be done through informed consultation and broad civil society participation and monitoring, including by local communities, trade unions, and other stakeholders. Uphold the right to free, prior and informed consent, and ensure the right to redress for any affected communities. The rights of affected communities should be taken into account.
- Ensure that rigorous transparency standards apply, particularly with regard to accounting for public funds — the contract value of the PPP and its long-term fiscal implications must be included in national accounts. Contracts and performance reports of social and economic infrastructure projects should be proactively disclosed. The public interest ranks higher than commercial interests.