What lies beneath? A critical assessment of PPPs and their impact on sustainable development

María José Romero
2015

Summary

Donor governments and financial institutions, such as the World Bank, are increasingly promoting public-private partnerships (PPPs), as a way to finance development projects. This report looks at the empirical and theoretical evidence on the nature and impact of PPPs based on experiences in Tanzania and Peru to assess whether they deliver on their promises.

The report has three sections: The first section examines the definitions of PPPs and their main features; the second section presents a critical assessment of PPPs, by addressing key concerns; and the final section makes strong recommendations for reform.

In the last decade has seen a huge increase in the amount of money invested in PPPs in developing countries. From 2004-2012, investments in PPPs increased from US$ 22.7 billion to US$ 134.2 billion. This has been driven by the need for economic growth, especially infrastructure development, but also by low returns in developed countries which has driven investors to search for profits elsewhere. Although investments in PPPs fell in 2013 to US$ 84.4 billion, current estimates indicate that the developing world will experience a new wave of PPPs in the near future.

Key findings

There is no universally agreed definition of PPPs. However this report defines them as a medium- or long-term contractual arrangement between the state and a private sector company, in which the private sector participates in the supply of assets and services traditionally provided by government (healthcare, education, prisons, infrastructure, water and sanitation and energy). Some degree of risk sharing between the public and private sector is likely to be involved.

Benefits of PPPs:

  • Capacity to deliver high-quality investment in infrastructure.
  • Reduces the need for the government to raise funds upfront, with costs appearing either as future government debt or absorbed by users.
  • Depending on the sector and location, PPPs represent a very attractive business opportunity for companies such as construction and engineering companies, service providers (for example healthcare service providers) and banks.

Challenges of PPPs:

  • High level of risk for public institutions: PPPs are often the most expensive method of financing, significantly increasing the cost of government expenditure, and typically very complex to negotiate and implement.
  • The evidence of impact on efficiency of PPPs is very limited, whilst evidence of their contribution to development outcomes are mixed.
  • Implementing PPPs requires public sector capacity that in some contexts, particularly in development countries, is limited or absent.
  • Low transparency and limited public scrutiny undermines accountability – including proper redress of affected communities – and offers greater opportunities for corruption.

Recommendations

  • Stop hiding the true costs of PPPs: PPPs should get registered as government debts in national accounts, and therefore as part of debt sustainability analysis, rather than being off balance sheet.
  • Be transparent and accountable: governments should proactively disclose documents and information related to public contracting in a manner that enables meaningful understanding, effective monitoring, efficient performance and accountability of outcomes.
  • Prioritise development outcomes: this means ensuring affordability of the services for the public sector and the users, and addressing equity concerns in terms of equitable access to infrastructure services and avoiding negative impacts on the environment.
  • Discuss needs, principles and criteria for use and assessment of PPPs with developing country governments.

Source

Romero, M.J. (2015). What lies beneath? A critical assessment of PPPs and their impact on sustainable development. Brussels: Eurodad.