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.

Buddy can you spare €100K?

This morning as I slept I possibly lost the house. How could you do that when you’re in deep slumber, you may ask? Well when I woke up I found out that my mortgage provider had been fireproofed against the creditcrunch by our government to the tune of €100K per citizen. Given that I’m 11 years into a 20 year mortgage the chance of me welching on our agreement are pretty slim so it was a shock to find out that not only am I liable for my own loans but potentially liable for dodgy loans that were given to customers who could not maintain their payments and should not have been given these loans in the first place by the banks. So needless to say I’m shocked. I've used figure like 400 B before but in the context of explaining Avogadro to Chemistry students

However, I’m more than shocked to find out that senior fat cat managers in all our banks have now embraced the state intervention so much. Lets mix metaphors and lay off the fat cats but it all sounds like something from the movies where Lassie finally makes it home through the gate, wagging its tail at its faithful master, leaner in the absence of nourishment but back where he belongs. Poor Lassie couldn’t hack it in the real world so back to mother’s apron strings it goes. Lassie doesn’t get to tell the tale and the master is never the wiser, it’s a real happy ending to a tug at the hear strings story.

Except this is the real world and its not the movies, or if it is its Gordon Gecko from Wall St. Gecko double crossed every one he dealt with. In business and politics, information and timing is everything. What the government don’t know is how much bad debt the Irish banks hold. What the government can’t do is protect Ulster Bank, Rabobank or National Irish Bank customers and what happens to those jobs if there’s a run on those banks into banks like TSB, AIB, BOI or Anglo Irish? Is this a ploy to attract cash to these banks at a time of international uncertainty and lack of confidence? Irish banks now look like a relatively safe port in a storm, but what storm? If this goes pear shaped how much will bank customers have to fork out to keep the fat cats in clover? How much is the state going to charge the financial institutions for the country's good name? All that has happened is that the good name of the country can be used to back Irish banks.

The decision to guarantee bank lending without a returning share issue is an enormous risk. Tax payers exposed, national credibility given to financial institutions, nothing in return. What is there to prevent an Irish bank being taken over and the states guarantee being used to protect a third party institution outside the jurisdiction? Not a lot. Those who live by the market die by the market. Markets are not there to preserve but to predate. Sentimentality, sense of community and protectionism are vane and poor reasons to protect those who behaved so greedily in the past. Ironically the building society that lampooned the banks with its “back of you bankers” ads now is itself a bank!

The legislation is being rushed through the Oireacthas as I type. There’s no word yet about guaranteeing those who’re in danger of losing homes because they can’t afford mortgage payments. These people usually don’t turn up in a FF race course tent unless of course they’re working there. Rather than wake us up to the reality of the market place this action by the government will lull us in to a false sense of security. Perhaps a case of buddy can you spare a pig in a poke?