Private Sector Financing – why it is never an option for public infrastructure 

Andy Wynne

23rd ICGFM International Conference, Miami, May 2009

Introduction

I agree with Filip that:

• PPP is not solution in time of financial crises – do not attempt to stimulate economy using PPPs

But I would go further and argue:

• private sector finance, public private partnerships or privatisation are never an efficient option for public sector infrastructure

Public private partnerships are magic!

• UK 1997 – how to invest without borrowing

• Nigeria 2009 – Lagos State Commisioner for health:

“if the state must build new hospitals, improve services,… the private sector is the best bet to turn to”

Why the World Bank supports PPPs

• ‘reduces’ government borrowing

• privatises public infrastructure

• reduces subsidies of public services

Changing the name will not help

• opposition to privatisation from 1990s

• PPPs are privatisation so in UK the trade unions have opposed it

• last week union demonstration in Lagos

• major campaign against PPP for water in Ghana

PPPs do not provide value for money

• in UK private sector borrowing is 1-2% more expensive than state debt

• December 2008: Lagos ₦50 billion bond at only 13% (inflation 15%)

• 2002 – 57% of public sector accountants in UK did not think PPPs provided VFM

“Evidence continues to show that PFI hospital schemes are unnecessarily expensive, and our concerns about affordability, value for money, inflexibility, risk transfers and service cuts have not been satisfactorily addressed.”British Medical Association, 2001

Risk transfer

“Risk transfer has proved difficult or impossible, so the taxpayer has ended up bailing out the commercial failures of the PFI companies.”

Prof S Glaister, Imperial College London, 2009

But was a useful way to ‘prove’ that PPP provided value for money.

“Tube Lines, the ultimate cowboy builder, wants to charge up to £2.1 billion more than an independent expert reckons the work should actually cost (and £3.1 billion more than Transport for London says it should cost). This is no “shortfall”, it is a greed and inefficiency premium” world.”

Andrew Gilligan, Evening Standard, 2008

Off balance sheet financing

The major attraction of PPP was that financing did not contribute to government debt

After a decade the accounting profession have corrected the error – PPPs now included in government debt

Charging for public services

The poor cannot afford to pay – health services and primary education in Africa

Proposal for Mumbai harbour bridge: toll Rs100 - average daily income Rs125

Opposition to toll roads/bridges from Mozambique to Scotland (Skye Bridge)

PPPs and corruption

“PPPs offer far greater latitude for manipulation by foreign or local firms or government officials that are hard for the public and anti-corruption systems to spot”

Peter Farlam, NEPAD, 2005

“In many parts of the world privatisation is called briberization.”

Joseph Stiglitz, Globalization and its Discontents, 2002

Conclusions

World Bank PPP database on developing countries:

“The Latin American experience, which is the richest among all regions in terms of PPI in water, offers a sobering prospect for PPI for financing urban water around the world.”PC Annez, World Bank Policy Research Working Paper, November, 2006

“When it comes to privatisation of infrastructure in developing countries, it has been unpopular, extremely difficult to achieve and few contracts have run smoothly.”Prof Ben Fine & Kate Bayliss , 2006