A new report examining Public–Private Partnerships (PPPs) as a way to finance development projects finds that they are risky and expensive and urges governments and financial institutions to stop hiding their true costs.
PPPs are agreements through which private financiers essentially replace governments as providers and funders of traditional public services like schools, hospitals and roads. The report, What lies beneath?: A critical assessment of public private partnerships and their impact on sustainable development examines the nature and impact of PPPs ahead of the landmark Third Financing for Development (FfD3) conference to be held from 13-16 July in Addis Ababa, Ethiopia. It analyses existing literature on PPPs and the experiences of Tanzania and Peru, based on the findings of African Forum and Network on Debt and Development (AFRODAD), and Latin American Network on Debt, Development and Rights (LATINDADD). European governments in particular, and financial institutions such as the World Bank, are planning to push the involvement of the private sector in development during the summit, despite the strong reservations of many experts in developing countries.
AFRODAD’s Policy Officer for Trade and Private Finance, Tarcicious Mufundisi said that most governments in developing countries are turning to PPPs for development and bridging the infrastructure gaps in their countries without much knowledge of the true costs and riskiness of PPPs. “PPPs in most circumstances do not have positive development outcomes but rather are profit oriented from the point of view of the private partners who drive them. There is a lot of secrecy in the negotiations of PPPs by the public sector, who often takes most of the risks associated with PPP projects,” argued Mufundisi.
He went on to say, “The report shows that although PPPs may not be the panacea to development needs of some developing countries, they have succeeded in other sectors mainly telecommunications. In cases of Tanzania and Peru successful PPPs are noted and have improved access to services for the people. However, in other sectors such as water, PPPs have terribly gone wrong like the experience of Tanzania where the water project in Dar es Salaam has to be cancelled. The Lesotho health PPPs is another bad example that has resulted in the PPP cost going up to US$ 67 million per year, three times what the old hospital would have cost today and in the process consuming more than half of the government’s health budget.
Overall, the new report finds that:
The major challenge that PPPs face include low transparency and limited public scrutiny which has the effect of undermining accountability. In some cases, PPP projects have resulted in public discontent due to higher costs and corruption allegations. (see examples of problems that occurred in PPP projects in Notes to Editors below). This report shows that promoting PPPs in a non-critical way is a mistake. Governments and financial institutions should focus on developing the right tools at country level to identify whether and under what circumstances – it is desirable to use PPPs.
The report recommends that governments should stop hiding the true cost of PPPs and that decision-making about PPPs is more transparent and accountable. It also recommends that development outcomes are at the forefront of any project and that developing countries are in the driving seat when principles and criteria to assess and implement PPPs are developed. The main report, and a summary briefing, can be found HERE
“During the FfD conference in Addis, we urge developing countries’ to put development outcomes of PPPs upfront rather than profit motives of the private sector.. Governments often hide the true costs of PPPs because they can keep the project and its contingent liabilities (or future potential debt) ‘off balance sheet’.”
Notes to editors:
Definition of a PPP in the report:
The acronym PPP is used to describe lots of very different types of arrangements. For this report, they are described as:
Examples of PPPs:
The Financing for Development Summit:
The Financing for Development Conference (FfD) will take place in Addis Ababa 13-16 July 2015. It is a summit during which world leaders will decide how to finance the Sustainable Development Goals, which will guide nations in their objective to eradicate poverty by 2030. More information can be found here: http://www.un.org/esa/ffd/