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Monday, October 27, 2008

PPP’s are dead in the water

I have always taken a cynical view of PPP projects. Public Private Partnerships was the Thatcherite response to delivering public services. Tony Blair’s New Labour embraced the idea enthusiastically too, as indeed did Sinn Fein in the Northern Executive. Lets be clear, the state has to interact with the private sector to provide infrastructure like roads, schools, hospitals. The private sector has always constructed these and there has rarely been a case that the Comptroller and Auditor General has highlighted as poor value for money from conventional procurement. It’s straight forward if not tediously slow. The need is identified, its designed, constructed and handed over.

However the PPP scheme works as follows; government identifies a need. It advertises the need within the private sector seeking interested contractors. The competition provides a winner. The government then enters negotiations with the successful bidder and signs a contract to pay the contractor over a period of time (say 20 years). The contractor then organises finance, designs, builds and finally operates the project. When 20 years is up the state will take over the service, not before another contract is agreed with the bidder to hand over after renovations are paid for by the state!

The advantage for the politician involved in decision making is to be seen delivering and that any failure to deliver is the responsibility of a private sector firm over which he has no immediate control. The collapse of PPP schemes aimed at affordable and social housing in Dublin is a classic example of politicians sidestepping the responsibility. The advantage for the private company is a steady revenue stream and an asset that they can develop as they see fit.
Public benefits of these projects have been minimal but companies involved in PPP’s often made large contributions to New Labour. PPP’s allow the private sector to dictate where public infrastructure is delivered and how fast. The failure of the Department of Education to build a second level school in Gorey points up the short comings of these schemes. Add in Thornton
Hall, cost over runs in PPP schemes in 5 Irish schools and the late arrival of LUAS.

I was quite surprised to hear 2 local FF TD’s singing the praises of PPP schemes given the complexity of the process. New Ross and Enniscorthy are set to get by-passes via PPP projects under the Transport 21 plan. If you believe the 2 lads sure they’ll be along in jig time. Not so, but don’t let the electorate know the reality.
Why I think the 2 TD’s are off the mark is because the finance is to be raised privately and because there is intense pressure in the money market for cash where will they get the money? How expensive will the cash be given that Ireland’s credit rating is deteriorating due to the banks bailout? If the successful bidder can access cash where will the state find the money to pay them back? Both TD’s are inviting the electorate to suspend their knowledge of the market place because we want to believe these roads will be built.

The reality is that it’s not going to happen either next year or the year after that. The credit crunch has done for PPP’s. PPP’s are on life support and given the reality that government borrowing is set to rise beyond the 6% GDP agreed and well above the 3% agreed as part of the single currency criteria, there’s no scope for off balance sheet borrowing. The wind is definitely out of the PPP sails and hopefully the tax payer will not be ripped off by a time wasting competition f or over priced assets.

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