Background on PPPs
These pages offer an introduction to how PPPs work, a demystification of their supposed advantages and more arguments and reasons for being wary of them.
Public-private partnerships have been scrutinised by a number of people already. Our website by no means offers a comprehensive overview of that criticism, but rather a compilation of the most important aspects.
Public-private partnerships involve commercial contracts between public authorities (state or local) and private businesses in the design, construction, financing and operation of public infrastructure and services that have traditionally been delivered by the public sector, such as motorways, hospitals or schools.
One of the chief misconceptions about public-private partnerships is that they somehow mobilise extra financial resources for projects that would otherwise have to wait several years to be implemented. This irresponsible claim encourages decision-makers to carry out projects that may not be affordable – and it is usually several years before anyone realises the damage done.
Infrastructure schemes – whether PPPs or not – often suffer from governance problems including poor planning, low administrative capacity of public officials to oversee projects, and lack of transparency. PPPs can make these problems more difficult to uncover and resolve because of their complexity and lack of transparency.
There are a number of purported advantages of public-private partnerships over conventional procurement contracts. Most of them, however, do not withstand a close examination.
PPPs in public service sectors have been highly controversial: while investment has been sorely needed into new infrastructure, there’s reason to believe that the PPP price tag has simply been too high, and that the expected service levels haven’t been delivered.
Refinancing involves the private partner paying off its original loan by taking out a new loan after the construction of the infrastructure is completed. Since most of the risks for the project have been removed at this stage, financing is available at much lower interest rates than before the construction, and thus the price of the project decreases.
The issue of refinancing gains has been among the most scandalous aspects of public-private partnerships.
One of the least examined aspects of PPP motorway projects is how the PPP model influences the resolution of environmental conflicts. In theory, it should not influence it at all.
The involvement of public banks in public-private partnerships has not proved to ensure that the public sector obtains good value for money from PPPs.